By Kim Coghill

Washington Editor

Genelabs Technologies Inc. and Watson Pharmaceuticals Inc. said Monday they entered a collaboration and license agreement under which Watson gained exclusive marketing rights for Aslera, Genelabs' orphan drug for the treatment of the chronic autoimmune disease systemic lupus erythematosus (SLE, or lupus).

The agreement gives Corona, Calif.-based Watson an exclusive license for North American rights to Aslera (GL701 or prasterone), for which Genelabs already has filed a new drug application.

The companies also will collaborate on the development of other indications for Aslera as well as other pharmaceutical products based on prasterone. But James A.D. Smith, president and CEO of Redwood City, Calif.-based Genelabs, would not go into detail on future uses of the drug. "There are areas that we are very interested in exploring. We have not set up a program yet in selection of specific indications with Watson," he said. "We need to sit down and really plan and prioritize."

Watson will pay Genelabs fees and milestone payments up to $55 million, including a $10 million nonrefundable initial license fee with milestones payable upon FDA approval of Aslera. Genelabs, however, will receive royalties on net sales of Aslera and retains future co-marketing rights.

Watson also has agreed to purchase 3 million unregistered shares of Genelabs common stock for an aggregate purchase price of about $6.85 per share, or $20.5 million. Under the agreement, Watson has a five-year warrant to purchase 500,000 additional Genelabs common stock exercisable at $6.85 per share.

Genelab's stock (NASDAQ:GNLB) closed Monday at $5.56, up 87.5 cents.

"Watson is really a perfect fit for us, and the reason behind that is they have the size and scale to be able to very efficiently bring this product to market," Smith said. "They have franchises in areas that are highly synergistic, we believe, with lupus. Lupus is a disease principally of women, about 90 percent of the patients are female, and Watson has a franchise in women's health. Our product is hormonal; they have a franchise in endocrinology."

But perhaps the most important element, Smith said, is that Aslera has the potential to be extremely important to Watson's portfolio. "Watson has been rapidly growing, but unlike a relationship with a really major pharma company where our product might be small in comparison to other things in the portfolio, at Watson, Aslera has the potential of being very important."

Sara Swee, director of communications at Watson, said, "Since Watson was founded, our strategy has been to find the drug that others either don't know how to replicate, in terms of generics, or maybe a drug that's already been produced that sits in big pharma's bag, that just doesn't really command the attention of its sales and marketing force - we'll throw our sales detail force on it and it becomes a significant product to us. This strategy fits nicely with Aslera."

Founded in 1983, Watson has 3,000 employees nationwide and anticipates revenues next year in excess of $1 billion. The company's women's health and general products sales force of 300 will be responsible for Aslera.

Genelabs anticipates receiving FDA approval of Aslera toward the end of the first quarter. Smith said the product will be launched as quickly as possible. Upon approval, it would be the first new treatment for SLE in 40 years.

In late October, Genelabs was notified that Aslera had received FDA priority review designation. In double-blind, placebo-controlled Phase III trials, Aslera showed the ability to improve SLE and reduce steroid requirements in women with lupus. (See BioWorld Today, Sept. 22, 1999; Nov. 23, 1999; and July 12, 2000.)

SLE is an autoimmune disease affecting about 1 million people worldwide. It causes severe fatigue, arthritis, facial rash and unusual sensitivity to sunlight. It can lead to serious inflammation of the lungs, heart and brain, as well as kidney failure.